Archive for the ‘Antitrust’ Category

“Competition is one click away:” can the Internet ever be a dominated market?

January 4, 2013

After a lengthy investigation and several compromises on Google’s part, the Department of Justice has announced that it is dropping its antitrust probe into Google’s advertising model. Throughout the investigation, a catchphrase among Google’s various agents involved in the investigation was that, no matter how restrictive their agreements with sites and advertisers, no matter how far the reach of Google’s algorithms, Google’s competitors were always just “one click away.” But is this actually a sensible defense to the kind of antitrust investigation that the Department of Justice was running? And if it is, is it ever actually possible to commit an antitrust violation on the internet?

The DoJ’s investigation in Google was on a wide variety of issues, but most of the important issues orbited the question of whether or not Google had been abusing its dominant market share in search engine traffic to leverage unfair or overly restrictive arrangements with advertisers. Note that the question is not whether Google has dominant market share, or even if Google actually is a monopoly (it isn’t), since, contrary to a widespread misunderstanding of antitrust law, it is not illegal per se to be a monopoly or to hold dominant market power. The inquiry is into the methods used to acquire the power, and how that power is used once it has been acquired. Conversely, a firm does not need dominant market share or monopoly power in order to be guilty of most antitrust crimes: two tiny boutique firms that sign an agreement not to compete in a certain city (a “geographic market distribution” violation) or mutually agree not to price below a certain level (a “horizontal price-fixing scheme,” the only antitrust violation that more or less guarantees criminal penalties on top of civil ones) are just as guilty as a giant firm.

The question becomes stickier when it comes to mergers, but fortunately for the complexity of this post, the DoJ investigation that recently ended is separate from the investigation into Google’s acquisition of Motorola, which caused quite a stir in the DoJ and forced Google to make certain concessions in the European Union.

Antitrust laws are targeted to anything that harms competition – not competitors. Google’s acquisition of a huge market share through ingenuity, good products, and dumb luck has surely been ruinous to several competitors along the way, but that’s all in the nature of the free market and is beyond the purview of the antitrust laws. What was more interesting to the Department of Justice was Google’s manipulation of search engine rankings according to deals made between Google and its advertisers. Combined with certain restrictive non-compete agreements with this advertisers made the DoJ increasingly nervous that Google was making deals in “restraint of trade-” the money phrase for antitrust violations. Google reminded the investigators simply that, for consumers looking for a better deal, competition was only “a click away.”

But the simple fact is that the antitrust laws do not really much care about the impact on consumers. The subject of yesterday’s post wrote a widely-read treatise on antitrust laws called The Antitrust Paradox making precisely the point that antitrust laws often result in worse outcomes for consumers, completely missing the point of antitrust laws, which is to protect no people, no businesses, and no products: just competition itself. Whether or not the average internet user got a better browsing experience, or if advertisers saw better returns on their marketing investments, is immaterial to the question of whether or not Google violated the antitrust laws.

In addition to being largely irrelevant, Google’s claim that its competitors are but a click away is usually simply false: Google’s advertising pervades the internet. Even if one might get to a different search engine some other way, many other search engines actually incorporate Google results into their algorithms, and the site that one actually accesses after using a search engine are often consumers of Google advertising deals. Google’s competitors were simply having a tough time getting a word in edgewise because many web content providers (including, until a couple of years ago, this blogging platform) were under exclusive deals to contract with Google’s AdSense.

Another sign of weakness in Google’s one-click defense is that Google actually made several concessions throughout the investigation; Google either knew the DoJ wasn’t going to buy its defenses, thought that it might not buy them, or had actually been told that the DoJ wasn’t going to buy them. In either event, over the course of the investigation, Google “voluntarily” changed many of its back-end practices and the structure of some of its advertising deals to make the market more accessible to competitors.

It remains an open (and legally irrelevant) question as to whether or not consumers will benefit from these deals, and if so, which consumers – advertisers? Web users? Search engine providers? The theoretical underpinning of antitrust law is that protection of competition is protection of consumers, since our laws are built to protect an economic model that assumes that competition yields the best market outcomes. Whether or not that is true is entirely beyond the purview of the antitrust laws or this post, but the fact is that the antitrust laws assume that one follows from the other. It remains to be seen whether or not consumers will fare better, or even notice, the products of the Department of Justice’s investigation of Google.